Halliburton should repay overcharges on gas, Bush says

Some allies barred from replacing firm

By Matt Kelley, Associated Press | December 13, 2003

WASHINGTON -- President Bush said yesterday that Vice President Dick Cheney's former company should repay the government if it overcharged for gasoline delivered to Iraq under a controversial prewar contract.

"If there's an overcharge, like we think there is, we expect that money to be repaid," the president told reporters when asked about the controversy over the Halliburton Co. contract.

Pentagon auditors say the company overcharged up to $61 million for delivering gasoline to Iraqi citizens under a no-bid contract to rebuild Iraq's dilapidated oil industry. Halliburton denies overcharging.

Meanwhile, an Army spokesman disclosed that companies from France, Germany, Russia, and Canada won't be eligible to replace Halliburton as the recipient of the oil reconstruction contract. The Army Corps of Engineers is reviewing bids and hopes to decide this month who will get the oil reconstruction deals worth up to $800 million in northern Iraq and $1.2 billion in the south.

The decision means an additional $2 billion in contracts in Iraq, not disclosed before, would be forbidden to countries that opposed the war, along with the $18.6 billion in Iraq work the Bush administration declared off-limits Tuesday.

Democrats have joined the fray, saying Bush is alienating allies and rewarding political supporters. Cheney headed Halliburton from 1995 until he became Bush's running mate in 2000, and other executives from the company gave generously to the Bush campaign.

"George W. Bush is preventing entire nations from bidding on contracts in Iraq so his campaign contributors can continue to overcharge the American taxpayers," Howard Dean said while campaigning for president in Iowa yesterday.

The political impact is still unclear. As long ago as May, about half the respondents in a CBS-New York Times poll said they thought the Bush administration gave contracts to companies because they had close GOP ties.

Pentagon officials say they gave Halliburton the prewar oil contract because it was essential to start rebuilding quickly after the US-led invasion. Halliburton already had the competitively bid contract to provide short-notice logistical help for the Army.

Separately under that contract, Halliburton has been paid about $3 billion for supporting the military with cafeteria, mail delivery, and other services.

The oil contract, which started as a relatively small order for fighting oil well fires, has grown into the largest reconstruction contract in Iraq. Halliburton has gotten more than $2.3 billion so far on that contract -- $989 million from US taxpayers, $1.3 billion from the United Nations' oil-for-food program, and $90 million from seized Iraqi assets.

The largest part of Halliburton's oil reconstruction contract is providing gasoline and other fuel to Iraqis while the country's oil industry is rebuilt. A Pentagon audit found Halliburton was charging $1.09 more per gallon for gasoline it trucked into Iraq from Kuwait than for the same fuel it imported from Turkey.

Pentagon officials said Thursday that Halliburton's Kuwaiti subcontractor apparently charged too much for the gasoline. Halliburton's president, Dave Lesar, said the Kuwaiti firm was the only one that met the contract's requirements. Lesar said Halliburton earned "a few cents on the dollar" for delivering the fuel.

Under the contract, Halliburton gets a guaranteed profit calculated as part of the company's costs. Halliburton is guaranteed a profit equal to at least 2 percent of its costs. Halliburton can earn a profit of up to 7 percent of costs.

If the subcontractor did overcharge by $61 million, Halliburton would be guaranteed $1.2 million in profit from that amount. If Halliburton earned the entire 7 percent, its profit on the overcharge would be about $4.3 million.

Meanwhile yesterday, the White House said former secretary of state James A. Baker III has taken steps to avoid any conflict of interest between his business dealings and his new role as Bush's emissary on Iraq's debt.

Baker is a trouble-shooter and longtime Bush family friend who has extensive business relationships around the world. His Texas law firm, Baker Botts LLP, counts Halliburton as one of its clients and has an office in Saudi Arabia. He also is senior counselor to the Carlyle Group, a global investment company.

Before Baker's appointment as a volunteer, the White House counsel's office conducted a thorough review of his business ties, Scott McClellan, White House spokesman, said.

"He is complying with all applicable ethics laws and rules, including the filing of a financial disclosure form disclosing his assets and incomes and liabilities and outside positions," McClellan said.

With both the Carlyle Group and Baker Botts, Baker has renounced his partnership share of fees in client matters if they might constitute a conflict with his official duties, McClellan said.